Ha-Joon Chang: Further unrest will stall recovery

guardian.co.uk

François Hollande says the worst is over for the eurozone crisis, but I don't agree, for two reasons. First, while the European Central Bank (ECB) has recently done things to calm the financial market for the moment, it is not clear whether it will be able to repeat this act if the world economic situation gets worse – the Chinese economy is slowing down and the US may experience a double-dip recession if Mitt Romney wins and lets Paul Ryan loose on the budget.

Second, even if there is no further austerity for Greece and other "periphery" countries (as Hollande promises), the swingeing cuts that have already been made to the social spending in those countries are overwhelming. Many people in those countries have stretched themselves to the limit to cope with the cuts, but they cannot continue to do so for much longer, especially in the face of high unemployment. When they decide that they have had enough, there will be further social unrest, which will stall the recovery, as long-term investors, whom Europe needs for a genuine recovery, need a stable environment.

• Ha-Joon Chang teaches economics at Cambridge University

Alistair Darling: Three steps are necessary

Guardian

I agree with President Hollande that recession is as big a threat as debt. I wish I could agree that Europe is near to the end of the crises. The eurozone will probably not break up but that is because of politics rather than economics.

For recovery, three steps are necessary:

First – the eurozone banks need to be properly capitalised and toxic debts dealt with. Spain needs to do this urgently. A credible timetable for the banking union needs to be put in place, although that will have implications for the UK.

Second – a credible solution to the Greek problems needs to be put in place.

Third – I agree that austerity on its own will never work. What is needed is a credible plan for growth and deficit reduction.

The ECB has bought time. The eurozone leaders needs to agree a credible plan.

• Alistair Darling was chancellor of the exchequer from 2007 to 2010

Costas Lapavitsas: The ECB can provide liquidity, but not solvency

guardian.co.uk

This misleading impression has been created by Mario Draghi of the ECB, who announced that he will lend freely to countries in trouble, driving interest rates down. There has already been virulent opposition, led by the Bundesbank. For conservative German opinion, Draghi is the devil in Goethe's Faust, luring Angela Merkel into a deadly pact of inflation. Also, for ECB lending to materialise, a country must first accept tough austerity conditions. Which European politician will do that?

Above all, the ECB can provide liquidity, but can do nothing about the solvency of states. The eurozone periphery is effectively bankrupt, and the EU policy of austerity is making things worse, especially in Greece. The economy has collapsed, public debt will soon need another major haircut; there are huge human costs and explosive social conditions. If the crisis is even to approach resolution, austerity must be lifted and investment funds directed to the periphery. As there is no prospect of that, 2013 will probably be even worse.

• Costas Lapavitsas is professor of economics at the School of Oriental and African Studies, London

Phillip Inman: Optimism set against a gamble

guardian.co.uk

It is possible that a bailout for Spain, an agreement for a eurozone-wide banking union and the appointment of a sword-wielding budget tsar will draw a line under the current crisis. Calm may also be restored because, above all, eurozone leaders are desperate to stay inside the currency zone to save face and tackle internal problems they themselves are incapable of dealing with (corruption in Greece and employment protections in Italy and Spain are two examples).

But this optimism is set against the gamble that low-paid workers in the worst affected countries will accept a sharp decline in their living standards and the loss of democratic accountability that comes with the creation of centralised bureaucracies in Brussels.

Keeping wages low and forcing the repayment of all bank and sovereign debts will act as a drag on consumer spending and growth for many years, prolonging the current depression. Spending cuts tend to affect lower income groups, especially when the cuts are to welfare payments.

Britain is about to embark on the second stage of austerity with a particular focus on cuts to social security spending. The trade unions are already assessing the likely impact of a proposed general strike. There are concerns that leaders in Germany, Holland, Finland and Austria will demand that all debts be repaid by governments and banks in the periphery. That's a recipe for social unrest across the rest of Europe – something the International Monetary Fund has already warned about.

• Phillip Inman is the Guardian's economics correspondent

Luis Garicano: Empty promises won't end the crisis

guardian.co.uk

Is it nearly over? No! Undoubtedly, the European Union took this summer three decisions which, if implemented, could end the critical stage of the crisis. First, the ECB decided to act like a grown-up central bank and deal forcefully with panic-driven rollover crisis in its member states bond markets. Second, the eurozone agreed a direct recapitalisation of Spain's failing banks. Third, a banking union was agreed.

These measures could deal with legacy banking debt, allow member states to finance themselves at non-punitive rates and set up key institutions for a sustainable eurozone future. Regrettably, while the ECB's promise has not yet been tested, it looks like the other two were empty promises. Spain was recently told its legacy banking debt was its problem and nobody else's, clouding the prospect of a recovery any time soon. And the German government blocked all the steps towards the banking union. Spain is facing an unprecedented depression, which is putting at risk its very existence as a country. If its partners will not admit any responsibility for the legacy debt – the consequence of the poor Euro design – Spain will not get out of the hole, and Europe will remain at risk.

• Luis Garicano is professor of economics and strategy at the London School of Economics and Political Science

Olaf Gersemann: This is only a respite

guardian.co.uk

We might have entered a period of relative calm in the eurozone. The key reason is simple: Germany's chancellor, Angela Merkel, wants to be re-elected in September 2013, and it seems obvious to observers in Berlin that until then she will try to prevent anything that might lead to renewed panic attacks on financial markets. This alone makes, among other things, a "Grexit" over the next 12 months unlikely.

However, it's not only Greece that is still not on a sustainable path. It's far from clear if and how the euro club's southern members will bring down their debt levels and current account deficits decisively at a time when the chances of being bailed out by the ECB and the ESM. More specifically, only time will tell whether people in Portugal or Spain or Greece are willing to suffer through a multi-year painful adjustment period rather than having their countries leave the euro system. It is also far from assured how voters in Germany will react once they really have to pick up the bill.

No, President Hollande is very likely to be wrong. It ain't over till it's over.